The Connecticut legislature passed H.B. 5435 on May 1, 2010, which authorizes a personal income tax credit of up to $250,000 for an "angel investor" who makes equity investments in start-up Connecticut businesses in specified sectors. If Governor Rell signs the bill - and it is expected that she will - the credit will equal 25 percent of cash investments larger than $100,000 that are made in exchange for equity positions in eligible Connecticut businesses. The bill is to take effect July 1, 2010, and apply to taxable years commencing on or after January 1, 2010. This "Angel Tax Credit" is intended to assist Connecticut start-ups in obtaining financing by incentivizing angel investment.
As defined in the bill, a person qualifies as an angel investor if he or she is an accredited investor under Securities and Exchange Commission rules (for example, an individual whose net worth exceeds $1 million or whose annual income exceeds $200,000). The credit is also available to networks of accredited investors but does not apply to 1) any person controlling a 50 percent interest or more in the business in which the investment is made; 2) venture capital companies; or 3) banks, trust companies and insurance companies. If the angel investor uses a partnership, S corporation or LLC for the investment, the tax credit will pass through to the partners, shareholders or members.
In order to be eligible for a qualifying angel investment, a business must meet certain criteria. First, the business must be engaged in bioscience, advanced materials, photonics, information technology, clean technology or any other emerging technology as determined by the Connecticut Department of Economic and Community Development. The business must also have its principal place of business in Connecticut and:
Businesses that meet the above criteria must apply to Connecticut Innovations, Inc., a quasi-public corporation, which will maintain a listing of eligible businesses.
Administration of Credits
An angel investor in an eligible business may apply to Connecticut Innovations, Inc., to reserve the credit. The aggregate annual amount of credits to be reserved under the bill is capped at $6 million for fiscal years from July 1, 2010, through July 1, 2012, and $3 million annually thereafter until July 1, 2014, when the program is set to expire. Credits must be claimed in the year the investment is made and may be carried forward for five taxable years. Angel investors receiving the credits may not transfer them to another taxpayer.
Whether you are a Connecticut start-up company exploring financing options or an investor evaluating a position in a Connecticut business, our attorneys would be happy to provide practical advice and assist you in all stages of the process.
Brian Fischer spoke on "Defining Success from a Legal Perspective – How to Best Structure the Transaction to Meet the Owner's Objectives while Providing Significant Legal Protection," at an Exit Planning Exchange (XPX) Hartford program.
On November 13, Day Pitney LLP and FH+H, PLLC, along with PDB FutureCom International, hosted an invitation-only program, "Industrial Internet of Things (IIoT) & America's Critical Energy & Transportation Infrastructure," held at the new International Spy Museum in Washington, D.C.
Day Pitney LLP, together with the State of Israel and PDB FutureCom International, hosted a unique, invitation-only Startup Program for early-stage cybersecurity and analytics investors at the Cornell Club of New York.
David Waizer gave a presentation, "Select Legal Issues for Startups," at the Rutgers Business School Collaborative for Technology Entrepreneurship and Commercialization (CTEC).
On Thursday, May 18, Rick Harris moderated a panel, entitled "Scale-Ups up in Connecticut: Jump Starting Growth," which was put together by the MIT Enterprise Forum of Connecticut and by the CEO of JANUS Associates, Inc., an early Connecticut Innovations portfolio company.
Day Pitney Press Release
On October 26, Day Pitney LLP hosted a program on entrepreneurship and innovation with the Consulate General of Israel to New England and the New England Israel Business Council at the firm's Boston office.
Day Pitney partners Michael Furey and David Waizer were recognized in the inaugural NJBIZ Vanguard Series: Leaders in the Law.
Peter Bilfield and Steven Gold were quoted in an article, "Day Pitney Lands 2 Corporate Finance Partners," published in Law360.
David Waizer was quoted in an article, Venture Capital Exec Returns To Day Pitney As Partner, published in Law360.